Beware of expanding student loan eligibility

Monday

Dec 3, 2012 at 12:01 AM

Republicans find themselves in the unenviable position of being forced to agree to raise taxes on those earning more than $200,000 (the actual cut-off for those President Barack Obama refers to as "millionaires and billionaires"), or risk being blamed for a tax increase on all taxpaying Americans. They will probably agree, which means it's a politically unavoidable policy, not a good policy.

Mona Charen

Republicans find themselves in the unenviable position of being forced to agree to raise taxes on those earning more than $200,000 (the actual cut-off for those President Barack Obama refers to as "millionaires and billionaires"), or risk being blamed for a tax increase on all taxpaying Americans. They will probably agree, which means it's a politically unavoidable policy, not a good policy.

Why does Obama insist upon raising taxes? Not because he believes it will improve the economy, and not because he believes it will increase receipts to the Treasury. The proposed taxes would bring in about $80 billion a year, a trivial number compared with our $1.3 trillion deficits. Making the books balance is (obviously) not Obama's goal. In 2008, when it was pointed out to him that President Clinton's cut in the capital gains rate increased the revenue from the tax (because lower rates encouraged more transactions), Obama was unmoved. He'd still favor an increase in the capital gains rate, he explained, for the sake of "fairness." In another famous and revealing moment, he told Joe the Plumber that he prefers to "spread the wealth around."

That's his lodestar. The Washington Post waited until the election was safely behind us to run a story by Zachary Goldfarb examining the president's governing philosophy. "'Beneath his tactical maneuvering lies a consistent and unifying principle: to use the powers of his office to shrink the growing gap between the wealthiest Americans and everyone else." The president, the article tells us (not that we didn't surmise this already), is determined to reduce income inequality.

The president has "an acute awareness of recent research," the Post continues, "showing that the changing economy has increased the value of a college education and made it harder for those without a degree to succeed. Obama's solution? Despite budget pressures, he made a goal of having every student receive at least one year of college."

Is inequality a problem if prosperity is broadly shared? As John F. Kennedy observed, "A rising tide lifts all boats." Improving the life chances of those at the bottom should be a priority. But the way to do that is to focus on education, family structure and expanding private sector employment, not on redistribution of income.

True to Obama's philosophy, we are pumping cash into the hands of students wishing to attend college. As the Wall Street Journal reports, "Nearly all student loans — 93 percent of them last year — are made directly by the government, which asks little or nothing about borrowers' ability to repay or about what sort of education they intend to pursue."

Sound familiar? It's exactly the sort of backwards thinking that, to coin a phrase, "got us into this mess." Politicians (most, but not all, Democrats) noticed that homeownership was associated with a number of social goods — steady employment, social engagement, high test scores for children — and decided that the homes were causing the other benefits. Make home ownership more broadly available by making mortgages easier to get, ran the logic, and everyone would benefit.

We know how that turned out. But the Democrats learned all the wrong lessons from that debacle — fairy tales that they may actually believe about greedy Wall Street and rich Republicans. So now we are busy repeating our folly, inflating what Glenn Harlan Reynolds calls the "higher education bubble."

"College is getting more expensive, a lot more expensive," Reynolds said. "At an annual growth rate of 7.4 percent a year, tuition has vastly outstripped the consumer price index of 3.8 percent. It's skyrocketed past spiraling health care increases of 5.8 percent. Even the housing bubble at its runaway peak pales in comparison."

Colleges are happy to pocket the windfall while students are being sabotaged. Half of all college graduates cannot find jobs. While homeowners could walk away from an underwater mortgage, there is no escape from student loan debt. Student loans, now in excess of $1 trillion, outstrip car loans and credit card debt, and, unlike those obligations, which are declining, continue to increase because the government is offering what seems to the unwary like a gift.

Just as the housing bubble collapse wound up increasing — rather than reducing — inequality, the foolish expansion of student loan debt may hobble an entire generation with a crippling burden. Perhaps the new debtors can console themselves, as they postpone marriage and move in with their parents, that Obama "cared about the problems of people like me."